Bills Target Condo Clauses That Allow Escalating Fees

May 5, 1986|By Rick Pierce, Tallahassee Bureau

TALLAHASSEE — When retired Washington, D.C., attorney Nathan Silberberg bought a condominium in Pembroke Pines 12 years ago, he signed an agreement to pay the developers every three months so that he could use the golf courses, swimming pools and shuffleboard courts.

Included was a provision to increase the fee according to the inflation rate. Because of the escalation clause, Silberberg now is paying $1,172 a year, more than double what it was when he purchased his unit for $27,000.

He and other residents of his condominium -- indeed many condominium owners across the state -- are pressuring legislators to outlaw escalation clauses in such lease agreements. As many as 250,000 condo owners statewide, half of them in South Florida, may be trapped in such leases.

``Did I go in with my eyes open?`` Silberberg asked. ``Yes. Were they wide open? I can`t answer that. A 200 percent increase in 12 years -- I couldn`t visualize that.``

A bill (HB 85) to outlaw leases that contain such escalating clauses based on the inflation rate, filed by Rep. Dorothy Sample, R-St. Petersburg, and co- sponsored by Rep. Walt Young, D-Pembroke Pines, has already cleared a House subcommittee. A similar bill (SB 351) has been filed in the Senate by Sen. Peter Weinstein, D-Coral Springs.

But because both bills aim at contract law, which lawyers tend to regard with sanctity, getting the measures through the Legislature will be difficult. And the fact that many legislators are lawyers doesn`t help.

``No matter what the law was, it`s unfair,`` said Young, who is not an attorney.

Even if a resident of Silberberg`s development, Hollybrook, decides not to use the recreational facilities, he still has to pay on the lease, which is tied into the purchase agreement. Most recreational leases are required as part of the purchase.

And residents of many condominiums who pay on recreational leases say that often they are stuck with their unit because potential buyers are scared off by the escalation clause. Many of the leases run for 99 years.

The recreational lease should not be confused with the maintenance fee. In fact, Hollybrook residents and others who are under such a lease wind up maintaining the recreational facilities, even though the developer or an outside party remains the owner. They even wind up paying property taxes on the land.

The situation is similar at other condominiums.

``These people do not touch anything here,`` said Ben Pesta, a resident of Manor Grove II in Wilton Manors. ``They`ve made money on this hand over fist already.``

A change in the law and a court ruling wiped out escalation clauses after 1975. But the court ruling failed to extend to those who signed contracts with such provisions before 1975, when the law was changed.

Officials estimate that between 125,000 and 250,000 condominium owners in the state still pay on such leases. Between 22,000 and 50,000 of those are in Broward County. Another 14,000 to 35,000 are believed to be Palm Beach County.

When Silberberg bought his condominium, he was paying $120 every three months or $480 a year. Now, the fee is $294 every three months, which amounts to $1,176 annually.

``We all knew that there was a recreational lease,`` said Silberberg`s neighbor, Joe Rosenzweig, also a retired lawyer. ``We all knew as they said, there was a cost-of-living increase. But nobody at that time computed what it would be. When a man signs a lease, I don`t care if he`s a four-time CPA, he can`t compute what his lease would be.``

In 1980, Rosenzweig bought out his lease for $7,764. He purchased his unit in 1973 when the recreational lease cost $480 per year. Most Hollybrook residents also took advantage of a buyout opportunity at that time.

But the owners of 550 condominiums in that development decided to continue paying the quarterly fee.

Currently residents say buying out the lease would cost about $12,000.

Many others throughout the state have bought out the lease or negotiated an agreement to eliminate the escalation clause. The condominium owners in the 7,854-unit Century Village located outside of West Palm Beach reached an agreement with the builders in 1980 to eliminate the provision that tied the fee increase to the inflation rate.

``I thought it was horrible,`` said Philip Sokol, who is an association president in Century Village.

Sokol said the fee still goes up under the agreement, but the increase goes up in regular amounts and is not tied to the inflation rate.

Jim LaBonte, former president of the South Florida Symphony and one of the developers of Hollybrook, concedes that there have been abuses of such escalation clauses by unscrupulous developers.

But LaBonte, who said he still receives money from ``less than 50`` recreational leases at Hollybrook, pointed out that the Pembroke Pines complex has considerable facilities.

``The amount of money we put in there was in the millions,`` LaBonte said.

He said the two bills filed in the Legislature are outright attempts to pander to the condominium owners.

``It`s a big voting bloc,`` LaBonte said. ``My own feeling is that it`s all political.``

Robert Lipsett, a retired doctor who lives in Coral Springs Gardens, is stuck with a similar escalation clause in his recreation lease. Until 1983, it was $311 a year. Now, he pays $847.35. In two years, another increase is expected.

``That`s what frightens those of us living on retirement,`` said Mary Jane Small, treasurer for the Coral Springs Gardens Condominium Association.

Rep. Young, meanwhile, has vowed to continue to press for changes, even if the bill is killed this year.

``We`re going to pass this, maybe not this year, but we`ll keep trying,`` he said.